Illegal Gambling & Money Laundering

As September and October roll around, my focus turns to the upcoming tax filing deadlines. But, for gamblers, this time of year usually means one thing. Football is back. The return of NFL and NCAA football usually leads to increased sports betting activity across the country. While regulated sports betting is available in over 30 states, there is still a large unregulated market. 

The IRS is well aware of the growth of both regulated and unregulated betting markets. They issued taxpayers a friendly reminder that running an illegal gambling operation, and laundering illegal profits, remains a focus for their Criminal Investigation division. They highlighted a Chicago bookie, who failed to report his gambling income. He then proceeded to launder this income using checks and various investments.

This goes without saying, but partaking in illegal activities, such as the acceptance of unauthorized wagers, remains against the law. However, the legality of your income does not affect your tax reporting requirement. As I outlined earlier in the year, income from operating illegal gambling activities still must be reported to the IRS. This sounds counterintuitive. If someone is breaking the law, it is highly unlikely they will then follow the tax code pertaining to said illegal activity. 

I realize 99% of those people participating in the sports betting economy are not running an underground book, but the sentiment applies to recreational and professional gamblers as well. Your winnings and losses should be logged and reported, whether they are occur on a regulated or unregulated book. Even if sports betting is not yet legal in your state, you must report your activity on your federal and state return each year.

The legal ramifications of accepting wagers are much different than those of placing wagers, but failing to report income of any kind, could lead to a big problem with the IRS.